Costing System-> Installing a Cost Information and Accumulation System: Thread Company produces a standardized and high-quality cotton thread. Recently the firm accepted the offer of a large distributor to produce small lots of high-quality thread with special characteristics at a relatively high margin of profit. Heretofore, controls on costs were maintained by processes because of the standardized nature of the product. It is now believed that the old costing system is no longer satisfactory because a knowledge of the profitability of each job lot is needed.
In order to produce these small lots, skilled workers in several of the departments have been assigned to work on the special orders; in some instances, even special locations for this type of work have been established. However, in some phases of the production processes the special threads are processed in the same way and by the same workers and facilities as the present, regular line. Installation Of A Costing System will ensure smooth information.
Management is thinking for the adjustments that are advisable in the present costing system and the reasons for them. And seeking way to face problems because of these adjustments. They also have a textile company where they might go for Installing a Cost Information and Accumulation System or a costing system.
Management explains briefly that he manufactures many different cloths, starting with scoured wool that passes through the following processes before becoming finished cloth: picking and blending, carding, spinning, weaving, finishing, and dyeing. The company’s salesmen take orders considerably in advance of the actual production of the cloth, using samples produced during a special period set aside each season for the manufacture of samples. Competition is keen and the profit margin is low. Financing is received through bank loans.
But the management is confused about the principal advantages of installing a costing system and as to principal additions or alterations necessary to operate a costing system.